Commission Accounting FRS 102 UK: What Changes for Periods Beginning On or After 1 January 2026

TL;DR

FRS 102 Section 23 is now modelled on IFRS 15 and includes, for the first time, an explicit framework for costs to obtain a contract in paragraphs 23.113–23.115. Sales commissions paid only because a deal closed (the textbook "incremental cost") are squarely in scope. Unlike IFRS 15, FRS 102 makes capitalisation an accounting policy choice, not a mandate — and a practical expedient lets you expense any commission asset that would amortise over a year or less. The work for finance teams in 2026 is: pick a policy, define what counts as truly incremental, set an amortisation period tied to the expected customer life, and pull clean data out of your commission system to evidence the asset.

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FRS 102 Section 23, rewritten in the 2024 Periodic Review, now includes an explicit framework for capitalising sales commission costs for accounting periods beginning on or after 1 January 2026. Unlike IFRS 15, FRS 102 makes capitalisation an accounting policy choice rather than a mandate, and offers a practical expedient to expense any commission that would amortise within one year. UK finance teams must now choose a policy, define which costs are genuinely incremental to obtaining a contract, set amortisation periods tied to expected customer life, and ensure their commission systems can produce clean deal-level data to support the asset register.

The Financial Reporting Council's Periodic Review 2024 rewrote Section 23 of FRS 102, and the new version is effective for accounting periods beginning on or after 1 January 2026. For most UK private companies — the ones that aren't on full IFRS — that means the first set of statutory accounts touching the new rules is landing right now. If you run sales commission for a UK business preparing accounts under FRS 102, this is the moment to decide how you're going to treat those costs.

What actually changed in FRS 102 in 2026?

The Financial Reporting Council issued the Periodic Review 2024 amendments on 27 March 2024, and the headline change is a complete rewrite of Section 23 Revenue from Contracts with Customers. According to the FRC, the new section "was completely rewritten as part of the Periodic Review 2024 to be based on the principles in IFRS 15," and the amendments are effective for accounting periods beginning on or after 1 January 2026, with early application permitted (FRS 102 Factsheet 10, November 2024).

In practice, that means revenue recognition now follows the familiar IFRS 15 five-step model: identify the contract, identify performance obligations, determine the transaction price, allocate it across obligations, and recognise revenue as each obligation is satisfied. The same factsheet sets out a brand-new "Contract costs" subsection that didn't exist in the old Section 23 — and that is where commission lands.

Why does commission accounting FRS 102 UK matter now?

Under old UK GAAP, sales commission was usually expensed as incurred — booked to the P&L in the month the deal closed and the rep earned it. There was no requirement, and not really a permission, to look at it any other way. New Section 23 changes that conversation. The FRC's Factsheet 10 spells out the new rule on costs to obtain a contract: "FRS 102 allows an accounting policy choice to recognise such costs as an asset when they meet the criteria that (a) the costs would not have been incurred by the entity if the contract had not been obtained; and (b) the costs are expected to be recovered" (paragraphs 23.113–23.115).

If your reps are paid 10% commission only when a contract is signed, that 10% would not have been incurred if the contract hadn't been obtained. It is, by definition, an incremental cost of obtaining a contract. The economic recovery test is usually trivial for a profitable SaaS business — you're going to make more from the contract than the commission cost. So most UK sales orgs now have a genuine accounting choice to make where they previously had none.

Which commission payments count as "incremental costs of obtaining a contract"?

This is where the work actually happens. The rule looks simple but the application isn't, because most UK commission plans pay for more than just contract signature. Use the table below to triage what's in scope.

Commission component	Incremental cost of obtaining a contract?	Treatment under FRS 102 Section 23
New-business commission paid only on contract signature	Yes — would not exist absent the contract	Eligible for the capitalisation policy choice
Renewal commission paid at lower rate than new-business	Generally yes, if specifically tied to the renewal contract	Eligible; amortise over the renewal term
Manager override on a closed deal	Yes, if directly contingent on the deal	Eligible (same basis as the rep's commission)
SDR/BDR bonus for booking a qualified meeting	No — paid whether or not the contract is won	Expense as incurred
Quarterly accelerator paid for exceeding quota	Mixed — usually treated as incremental if calculable per-contract	Capitalise the portion attributable to specific signed contracts
SPIFFs on activity (demos delivered, pipeline created)	No — not contingent on a contract being won	Expense as incurred
Salary, on-target base pay, retention bonuses	No — paid regardless of whether any contract is won	Expense as incurred
Clawback adjustments when a deal cancels	N/A — reverses the original entry	Reverse the asset (or P&L charge) when triggered

The tricky cases are accelerators and tiered plans. If a rep hits 120% of quota and the rate jumps from 8% to 12%, the extra 4 percentage points are still arguably incremental to the deals that pushed them over the line — but apportioning them deal-by-deal needs a defensible methodology. Our piece on designing commission accelerators walks through the mechanics, and if you're already running them you've inherited the data problem.

What's the 12-month practical expedient and when does it help?

Paragraph 23.114, as summarised in Factsheet 10, contains the rule that saves most finance teams a lot of pain: "Even if the entity chooses to recognise such costs as an asset, those that would be amortised over a period of one year or less may be expensed when incurred. Costs that are not recognised as an asset are always expensed when incurred."

In plain English: if the asset's useful life would be 12 months or less, you can skip capitalisation entirely and just expense the commission, even if you've otherwise elected the capitalisation policy. For UK sales orgs running monthly subscriptions with average customer lives under a year, or transactional models where customers churn quickly, this expedient is the right answer 90% of the time. You keep the simple P&L treatment, you disclose your policy, and you move on.

It only stops being the right answer when your customers stick around for years. A B2B SaaS contract with a three-year initial term and a typical renewal life of five-plus years is a genuinely long-lived asset that the new rules want capitalised — assuming you've elected the policy.

What amortisation period should you use for capitalised commission?

FRS 102 does not pin a specific number on this. The amortisation period must reflect the period over which the goods or services to which the asset relates are expected to be transferred to the customer. In practice, that usually means one of three things:

• The initial contract term — easiest to justify, but often understates economic reality if customers renew
• The initial term plus expected renewals — closer to economic substance, requires historical churn data
• Estimated customer life — typically the same as your cohort-based LTV calculation, but be ready to defend the assumption

Most UK SaaS finance teams land on something between 24 and 60 months for capitalised commission, with the exact number falling out of historical retention data. Whatever you pick, document the rationale and reassess it at each reporting date — if churn worsens, the amortisation period shortens and you take a hit through impairment.

How does FRS 102 commission accounting differ from IFRS 15?

For finance leaders who've worked at IFRS-reporting groups (or US GAAP shops under ASC 606), the FRS 102 version looks similar but has three meaningful differences worth flagging:

Area	IFRS 15 / ASC 606	FRS 102 Section 23 (2026)
Capitalisation of incremental costs	Required when criteria met	Accounting policy choice (paragraph 23.113)
12-month practical expedient	Yes, optional	Yes, optional (paragraph 23.114)
Disclosure depth	Extensive — contract balances, remaining obligations, judgements	New disclosures required, less granular than IFRS 15
Tax treatment	Follows accounting under UK rules	Follows accounting under UK rules

The FRC's own commentary on the differences notes that Section 23 "contains requirements that are intended to allow, but not require, an entity applying FRS 102 to have accounting policies that would meet the requirements of IFRS 15" (FRC: Significant differences between FRS 102 and the IFRS for SMEs Accounting Standard). That flexibility is the practical out for small and mid-sized UK companies that don't want the disclosure and reconciliation burden of full IFRS 15.

What about the corporation tax position?

HMRC's general principle is that taxable trading profits follow GAAP unless a specific tax rule overrides it. The FRS 102 overview paper on Corporation Tax implications confirms that revenue recognition under FRS 102 "will primarily be determined by Section 23 of FRS 102." So if you capitalise commission as an asset for accounting, the tax deduction broadly follows the same amortisation schedule — you don't get the full deduction in the year of payment.

One specific tax rule worth knowing about: section 1288 of the Corporation Tax Act 2009 requires that employee remuneration must be paid (in PAYE terms) within nine months of the end of the accounting period for a corporation tax deduction to be available in that period (HMRC BIM47130). Commission is employee remuneration. If you capitalise commission and amortise it over five years, the accounting and tax positions will diverge — the payment happens up front but the P&L expense (and arguably the tax deduction) is spread. This is a question to walk through with your tax adviser before you set the policy.

If you're already wrestling with the mechanics of how commission flows through PAYE and NIC, our breakdown on how commission is taxed in the UK covers the operational side. Understanding the employer NIC changes in April 2026 and their cost impact on commission budgets is the other 2026 finance-team headache landing in the same accounts.

How do you actually pull this data out of your commission system?

This is the bit nobody talks about. The accounting policy is theoretically straightforward; the data work is where finance teams get stuck. To capitalise commission under FRS 102, you need three things per deal, every period:

1. The incremental commission amount tied to that specific contract — gross of clawback, net of any non-incremental components like base SDR bonuses
2. The contract start date (or the date the rep earned the commission, if different)
3. The expected service period — initial term plus expected renewals — so you can calculate amortisation

If you're running commission in a spreadsheet, getting this data out is a manual reconstruction job, every month. You'll spend more time pulling the audit trail than calculating the actual asset balance. The hidden cost of commission spreadsheets is exactly this kind of downstream work that nobody costed in.

A proper commission system — one that holds the deal record, the plan rules, the calculated commission, the approval chain and the payment record together — should be able to export a deal-level commission ledger that maps directly to your GL. The job for finance is to (a) tag commission components by whether they're incremental, (b) join the result to your contract data with start dates and expected service periods, and (c) feed the amortisation entries into your accounting system. With Xero as the accounting destination, this should be a single batch journal each month, not a hand-built reconciliation.

What should finance teams be doing right now?

With the new rules live for periods beginning on or after 1 January 2026, the order of operations is roughly this:

1. Decide your accounting policy. Capitalise or continue to expense? If you decide to capitalise, the 12-month expedient is the next decision — does it apply to your business?
2. Audit your commission plans for what's actually incremental. Most plans pay a mix of incremental and non-incremental amounts. You need a per-component view, not a per-rep total.
3. Set the amortisation period. Anchor it to cohort retention data and document the assumption.
4. Build the data pipeline. Per-deal commission, contract dates, expected life — feeding the asset register monthly.
5. Update your disclosures. New Section 23 brings more disclosure requirements than the previous version, even if your policy is to expense. Read FRC Factsheet 10 carefully.
6. Coordinate with your tax adviser. Capitalising commission has knock-on effects on the corporation tax computation and the timing of deductions.

The Periodic Review 2024 amendments, as the FRC has confirmed, "in most cases be effective for accounting periods beginning on or after 1 January 2026" (FRC news, March 2024). If your year-end is December 2026, your first set of accounts under the new rules is being prepared now. If it's March 2027, you've got runway — but the comparative period for transition is already running, so the policy choice can't wait until next year.

For small sales teams tackling commission planning for the first time, the FRS 102 changes add a layer of accounting complexity that wasn't there under the old rules. If you're still in the early stages of building out your commission structure, now is the moment to design with capitalisation in mind — or to deliberately choose a plan simple enough that the 12-month expedient applies and you never have to think about it.

Frequently Asked Questions

Does FRS 102 require UK companies to capitalise sales commission from 2026?

No. The Periodic Review 2024 version of FRS 102 Section 23 introduces a framework for capitalising incremental costs of obtaining a contract (paragraphs 23.113–23.115), but the FRC explicitly makes this an accounting policy choice rather than a requirement. UK companies can continue to expense commission as incurred provided they apply the policy consistently and disclose it.

What counts as an incremental cost of obtaining a contract for commission?

Under paragraph 23.113 of FRS 102, an incremental cost is one that would not have been incurred by the entity if the contract had not been obtained. A new-business commission paid only on contract signature is the clearest example. Base salary, SDR booking bonuses, retention payments and activity-based SPIFFs do not qualify, because they would have been paid whether or not any individual contract closed.

Can I expense commission even if I elect the capitalisation policy?

Yes, in two situations. First, paragraph 23.114 contains a practical expedient: if the commission asset would be amortised over one year or less, it can be expensed when incurred. Second, the capitalisation criteria themselves must be met — costs that fail the incremental test or the recoverability test are always expensed.

How long should capitalised commission be amortised over under FRS 102?

FRS 102 doesn't specify a fixed period. The amortisation period must reflect the period over which the goods or services to which the asset relates are expected to be transferred — typically the initial contract term plus expected renewals, or estimated customer life. UK SaaS companies commonly land somewhere between two and five years based on cohort retention data.

Does capitalising commission change the corporation tax deduction?

Generally yes. UK trading profits follow GAAP for tax purposes, so capitalising commission for accounting will normally mean the tax deduction follows the amortisation rather than being claimed in full in the year of payment. Section 1288 of the Corporation Tax Act 2009 also imposes a nine-month payment rule for employee remuneration deductions, which can complicate the picture. Discuss the corporation tax implications with your tax adviser before locking in the accounting policy.

When does the new FRS 102 Section 23 take effect?

The Periodic Review 2024 amendments are effective for accounting periods beginning on or after 1 January 2026, with early application permitted. A company with a December 2026 year-end will report under the new Section 23 for the first time in its 2026 statutory accounts.